Maduro is leading Venezuela to economic ruin

By: Roger Noriega

Source: IASW 

Venezuelan President Nicolas Maduro made his debut at the UN General Assembly this morning, taking a brief break from his passion project back home, which is overseeing the economic collapse of an oil-rich country.

On September 16th, following months of deteriorating economic conditions, ratings agency Standard & Poor downgraded Venezuela’s credit rating into junk territory from B-minus to triple-C-plus. S&P warned investors there is a 50% chance that the government defaults on its sovereign debt in the next two years, stating, “We expect political polarization, erratic economic policy-making that exacerbates both the economy’s oil dependence and the prevailing macroeconomic inconsistencies, and weakening external liquidity to remain the main constraints to the ratings on Venezuela.” The credit rating agency also expects Venezuelan GDP to decline by as much as 3.5% this year, with inflation rising by up to 65% by the end of the year—one of the highest rates in the world.

Earlier this month, some hoped that a cabinet shuffle by Maduro might portend policy changes to back away from an economic precipice. Instead, Maduro doubled-down on socialist policies that are unsustainable due to the 40% decrease in oil production since his mentor Hugo Chávez took power in 1998. The only change was the demotion of minister of energy Rafael Ramírez, who was adept at calming the nerves of international financiers.

Senior Analyst at the Eurasia Group, Risa Grais-Targow commented on the move saying,

“Ramírez’s surprising demotion is important in that it reinforces our long-held view that Maduro was reluctant to implement Ramírez’s much-publicized adjustment plan … and that [Maduro’s] preference was to exert more control over the economy, a trend that has become more evident in recent weeks.”

Despite the country’s vast oil wealth, Maduro’s rigid ideological commitment to socialist policies has destroyed the Venezuelan economy, making its bonds (which were rated AAA from 1977 to 1982) among the riskiestin the world, with premiums 13 times those of Mexico or Chile. These economic measures have a real impact on the people of Venezuela who are plagued by massive shortages of basic consumer goods such as diapers, bread, meat, milk and medicine.

Venezuela is in dire need of market-oriented reforms, transparency and competent management of the state-owned oil company, and an end to corrupt and profligate spending. Maduro’s recent decisions have made it clear that he is unable or unwilling to avert the impending economic collapse.